Congress on Monday night approved a new Covid-19 relief package, authorizing $900 billion in new aid for small-business owners struggling amid soaring infection rates and renewed, government-mandated closures.
The Senate voted 92 to 6 to approve the Covid-19 relief package, as part of a $1.4 trillion omnibus spending bill that will fund the government through the end of September 2021. (Six Republicans voted against the bill, while two Republicans didn't vote at all.) In a 359-to-53 vote, the House passed the bill earlier on Monday night. The president is expected to sign the law imminently.
While individuals can count on another round of economic impact payments, which put $600 in the hands of each American earning less than $75,000 in 2019 (or under $150,000 if married and filing jointly) and their kids, much of the bill's outlay is earmarked for small businesses. Utilizing the $138 billion left over from the Paycheck Protection Program under the Cares Act, small businesses will have some $325 billion in new aid.
In addition to renewed access to the forgivable loan program, companies can also expect more flexibility in the PPP this time around. The slate of expenses for forgiveness expands to include software, cloud computing, and human resources and accounting needs, as well as personal protective equipment and supplier costs like logistics expenses and even direct product parts or materials.
The law also allows a second draw for those businesses that have already received a loan and experienced continued financial hardship during the pandemic. It restores the deductibility of forgiven PPP expenses, targets loans for the smallest of businesses, and provides a simplified forgiveness process for loans less than $150,000.
Here are the detailed highlights:
The PPP gets more targeted ...
The PPP will have $284.5 billion available for small businesses. If you have already taken a PPP loan, you can get access to a second-draw provided you have 300 or fewer employees and sustained a revenue loss of 25 percent in any quarter in 2020. Companies that have multiple locations need to show revenue losses and be able to count no more than 300 employees per physical location. However, an eligible entity may only receive one covered loan.
First-time PPP recipients will be held to the standards outlined under the Cares Act, which stated that a business needs to have 500 or fewer employees, says Ryan Metcalf, Funding Circle's head of U.S. regulatory affairs. Additionally that means they won't need to demonstrate revenue losses or prove the financial necessity of their loan if it's less than $2 million. The loan cap for first-time recipients is $2 million, down from the $10 million available to businesses under the first PPP.
... And expands to include additional entities
At the same time, the pool of eligible organizations expands to include certain nonprofits and entities such as tourism boards, housing cooperatives, newspapers, broadcasters, and radio stations. Lobbying organizations are specifically excluded if they receive more than 15 percent of their income from lobbying activities.
Some industries get a lift ...
Companies in certain industries that have been hit particularly hard, including restaurants and lodging, can apply for more PPP. The calculation for all businesses remains 2.5 times their average monthly payroll costs, save these businesses, which can multiply their average monthly payroll costs by 3.5 to reach their loan number. All second-draw loans will be capped at $2 million.
Further, live-venue operators, independent movie theaters, and cultural institutions like museums and zoos can expect $15 billion in grant funding. They'll similarly need to show a quarterly revenue loss of at least 25 percent in 2020 over 2019.
... As do some lenders and the smallest businesses
Community Development Financial Institutions, which typically operate in lower-income communities, will get $15 billion to guarantee loans. Another $15 billion will go to lenders and credit unions with less than $10 billion in assets. And $25 billion will go to the Minority Business Development Agency, for its work in helping minority businesses respond to the coronavirus. Technical assistance grants on the order of $50 million will also be available to small businesses.
Lastly, $15 billion will get set aside specifically for borrowers with 10 employees or fewer, who are applying for loans below $250,000. Eligible recipients must also be located in a low- or moderate-income neighborhood, as defined by the Community Reinvestment Act of 1977.
The EIDL gets extended
The Covid-19 version of the Small Business Administration's long-standing disaster loan offering, the Economic Injury Disaster Loan (EIDL) program was scheduled to sunset on December 31. Per this new law, the program will get extended through 2021. Businesses in low-income communities can also see around $20 billion in EIDL advances, which were exhausted in July. The advance grants would still be limited to $10,000, but if a business didn't get the maximum earlier, it could reapply for additional aid. For grant recipients that also received a PPP, your loan forgiveness will no longer be reduced by the amount of the grant.
The Employee Retention Tax Credit is extended and sweetened.
Lawmakers reauthorized the Employee Retention Tax Credit, the refundable tax credit which under the Cares Act provided 50 percent on the first $10,000 in annual wages for each eligible employee for a maximum of $5,000 per employee. That program was scheduled to sunset on December 31; as soon as the law passes, it will get extended beginning on January 1, 2021 through June 2021. Neil Bradley, U.S. Chamber of Commerce chief policy officer confirmed that the new credit amounts to 70 percent on $10,000 in wages per quarter (for as much as $14,000 per employee). The new law further requires companies to demonstrate a 20 percent reduction of gross receipts in any quarter to access credit; the old law required a 50 percent quarterly drop. While PPP recipients will be eligible for the credit, they won't also be able to take the deduction on expenses paid for with PPP funds.
More expenses are eligible for forgiveness
The slate of covered expenses under this round of PPP is far more liberal. Eligible expenses now include: covered operations like software; property damage costs due to public disturbances that occurred during 2020 that are not covered by insurance; covered supplier costs; and covered worker-protection expenditures like masks and plexiglass installations.
The fee structure will change slightly
Under the Cares Act, banks collected a 5 percent loan processing fee on loans totaling $350,000 or less; 3 percent on loans greater than $350,000 and up to $2 million; and 1 percent on loans greater than $2 million. This round of PPP tweaks this structure slightly, confirms Metcalf. For loans under $50,000, the fee a lender collects would be equal to the lesser of 50 percent of the loan principal or $2,500. This should make processing smaller loans more attractive for lenders, he adds.
Lenders will have more leeway
Under the new law, Metcalf notes, lenders will be able to provide full payment deferment relief (including payment of principal and interest) for up to one year. The lender may also provide an additional deferment period if the borrower provides documentation justifying the need. Lenders also get a safe harbor if they approve a loan later found to be fraudulent.
PPP expenses are tax deductible
As long as the Cares Act has been around, people have argued its intent when it comes to the deductibility of business expenses paid for with forgiven PPP money. This bill clarifies the question: Yes, they are deductible, confirms Bill Smith, managing director for CBIZ MHM's National Tax Office in Bethesda, Maryland. It directly contradicts IRS rules on this point, but Congress gets the last word on this, says Smith.
Forgiveness will be eased for some borrowers
Those with loans of less than $150,000 would be asked to submit a new (still to come) one-page forgiveness form with their lender. Borrowers would not be required to submit supporting documentation or certification previously described for loans under $150,000.